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By Tom Cushing

Brillís Pill, Distilled

Uploaded: Mar 15, 2013

I've admired Steven Brill since our much shaggier days; his early, spot-on exposee of the Teamsters was an act of journalistic courage. He has recently faced an even more formidable foe in the American health care system, of which he has written a 25,000 word diagnosis in Time magazine ("Bitter Pill", March 4 issue). Instead of the current political warfare over Who pays our medical bills, he asserts, we should instead be asking "WHY are these bills So Dam' High?"

Brill sets out to unmask a system that accounts for fully 20% of GDP, twice what other First World countries pay per capita, with no better results to show for the duplicate investment. If we could somehow wean the estimated $800B waste from a $2.7T annual invoice, we'd have addressed many of our most vexing public spending problems. But it's a seller's market run amok, with wildly-inflated prices opaque to its customers, utterly unhinged from its costs across the entire supply chain, and protected by lobbying investments five-times those of the well-greased defense and energy industries.

Ironically, its best-run sector is Medicare. That government program is cost-based, efficient, well-policed  and in danger of being dismantled because of its sheer size and growth. One alternative, popular among House partisans would substitute a deeply flawed, regressive voucher system, with all of the defects present in the private insurance system  and they are many.

Rather than paint the several thousand health insurers as the villains of this drama, Brill sees them as the hospitals' whipping boys, with only limited bargaining power. Each negotiates a significant individual discount on covered patients' bills  but a discount from what? Therein lies the key to understanding this debacle.

The increasingly powerful hospitals use a mysterious system called The Chargemaster to decide the rate at which each element of service is invoiced. The mark-ups are shamelessly outrageous. Typical examples include a lab test for which Medicare pays a cost-plus $14, billed at $198; $7 for a single prep pad, when a box of 200 retails for $1.91; and a cancer drug that costs $300 to make, then billed to the hospital at $3,000 and thence to the patient at a whopping $13,702! Sadly, those are not isolated cases, and they make the Pentagon's $100 toilet seats look like a bargain.

The explanations Brill says he was offered were three: nobody pays The Chargemaster rates, they are necessary to offset discounts given to insurers, and they underwrite charity care. None holds up to scrutiny. First, the near-poor/uninsured Do pay retail, often ruinously, as they have no buffer. Second, the insurance discounts are 30-50% on services typically marked-up well-over 100%. And charity care  at Chargemaster rates -- accounts for less than 5% of hospital revenue, according to the industry's own lobby. Their actual cost?  a pitiful fraction of that pittance.

The system also feeds itself. With their untaxed profit margins of 10-30%, non-profit hospitals can't pay dividends, so they expand facilities, buy the latest Chargemaster-able machinery and bestow handsome administrative salaries. Too often, those new machines provide only marginally better care, but their tests can be billed at multiples of the old tests  and no doc will ever be grilled by a malpractice attorney for ordering the newest new thing. Everybody has to have one, too, of course -- and we all pay.

Policy wonks used to think that part of the solution was to shorten hospital stays. The Chargemaster was more than equal to that task, however  shifting the highest of those outrageous mark-ups to the out-patient services departments.

So, what's to be done? Brill does not expect much help from ObamaCare  indeed, he believes that premiums will rise dramatically, at least in the short run. That reform simply does not address these problems as would, say, a single payor system (Medicare, for all). Nor is he very optimistic otherwise, given the complexities of reform  and the deep entrenchment of the interests. He offers a number of lawyerly possibilities, like outlawing The Chargemaster, eliminating hospital mergers, taxing all hospital profits and limiting administrative salaries.

As he puts it, "we've enriched the labs, drug companies, medical device makers, hospital administrators and purveyors of CT scans, MRIs, canes and wheelchairs. Meanwhile, we've squeezed the doctors [and everyone outside the system who gets stuck with the bills. We've created a secure, prosperous island in an economy that is suffering under the weight of the riches those on the island extract."

"And we've allowed those on the island and their lobbyists and allies to control the debate, diverting us from what Gerard Anderson, a health care economist at Johns Hopkins, says is the obvious and only issue: 'All the prices are too damn high.'"

Synopsis: the health care system is broken, and there's no relief in sight.